What Is An Emergency Fund And Why Do You Need One?

To allow you to be able to pay cash for future "emergency situations".

Unexpected situations that happen in the course of everyday life.

Your refrigerator may go on the fritz.

You may have to get a new set of tires for your car.

Your central heat and air system may develop issues.

The roof may begin to leak.

The kids may have unexpected school expenses.

You or your spouse may become ill and not be able to work for awhile.

What if you lost your job?

The point is... many things in life happen unexpectedly.

And... though not in our plan... we are forced to have to deal with them.

Normally that takes money.

An emergency savings is necessary so that... you will have the money you need... when life throws you a curve ball.

Without this "rainy day" fund you may have to pull out the credit card or go to the bank and borrow money in order to be able to address your current emergency.

In other words... you will be forced to create more debt.

Not good!

It is one thing to create debt of your own choosing. It is quite another to be forced to.

Without an emergency fund... life will force you to create more debt.

An emergency fund helps you stop this debt cycle.

How Much Emergency Savings Do You Need?

My recommendation is that... initially you should move aggressively to put back at least $1,000 as soon as possible into your emergency savings account. After that... just make a reasonable monthly draft into your account.

An ideal goal... to work towards... would be to ultimately accumulate an amount equal to... three to six months of after tax income.

Such an amount should allow you to be able to pay cash for most common emergencies.

In addition... it could also provide enough cash on a short term basis to cover your living expenses should you become unemployed or temporarily unable to work.

To evaluate how long it will take you to reach your "emergency savings goal" based on your monthly rate of savings... use the calculator provided by the following link.